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Market Rent - can it go down?

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  • Market Rent - can it go down?

    Hi, I'm writing on behalf of a friend who owns a commercial property in Auckland - it's a very specific space in the accommodation industry. The tenant is a large corporation.

    This year a market rent review needs to be done. The current annual rent is about $44k +GST.

    My friend engaged the services of a very well known and reputable Real Estate company/valuer, who have done the past market rent valuations, and according to them, the market rent is $49k. She presented the rental certificate to the tenant, specifically the CFO. He came back to her rejecting the valuation, and said per their assessment, the rent should be $35k. This is purely what he thinks it should be.

    When she rejected this offer, he came back with an offer of $40k per year but with a discount of $10k for this year, after which they won't ask for another discount until the next market rent review in 3 years.

    Clearly she declined this too.

    We would like to know - can market rent go down?

    She has contacted so many registered valuers but nobody else is willing to take on the job because the premises are so specific and they do not have the capacity to do so. The next step is reaching out to the Institute to see if they can help find a valuer willing to take the job.

    Any other advice would also be greatly appreciated.


  • #2
    Yes - there are reasons why market rent can go down. Especially if it's a very use-specific building design. However, most commercial leases contain a ratchet clause. Isn't there one in the present lease document?
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    • #3
      Originally posted by Perry View Post
      Yes - there are reasons why market rent can go down. Especially if it's a very use-specific building design. However, most commercial leases contain a ratchet clause. Isn't there one in the present lease document?
      Thanks for the clarification. I asked my friend to check her lease. She says it's not the standard ADLS lease agreement, and she can't locate a ratchet clause. May need to check again.

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      • #4
        Are you sure the valuation is correct? You provide no details on the location or specific accommodation type but if for example we are talking commercial converted to apartments and the location is central Auckland then yes, rents have declined.

        There is an oversupply of apartment accommodation with student targeted accommodation whacked especially hard – with rents down by over 20% versus pre-pandemic times. See https://www.stuff.co.nz/life-style/h...-aucklands-cbd

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        • #5
          Originally posted by Sanya View Post
          Are you sure the valuation is correct? You provide no details on the location or specific accommodation type but if for example we are talking commercial converted to apartments and the location is central Auckland then yes, rents have declined.

          There is an oversupply of apartment accommodation with student targeted accommodation whacked especially hard – with rents down by over 20% versus pre-pandemic times. See https://www.stuff.co.nz/life-style/h...-aucklands-cbd
          Thank you for sharing the article. It is an interesting read and I will pass the link on to my friend.

          I wasn't sure how much detail we're allowed to go into. But the property is in the Auckland CDB. It's a dining and lounge room unit with kitchenette facilities and laundry room, all within the large block of hotel apartments. Basically, it's used as a breakfast service area and games room by the hotel, and it services all guests.

          The valuation was done in February by a registered independent valuer. Aside from the tenant's opinion, my friend wouldn't have any reason to doubt the valuation, that's why she procured the services of an independent valuer in the first place.

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